Former Appeals Judge Kenneth Law Fined $4,100 for Campaign Violations

Former Third Court of Appeals Chief Justice W. Kenneth Law agreed to pay a $4,100 penalty imposed by the Texas Ethics Commission to settle charges brought by Texans for Public Justice that he violated numerous campaign finance regulations during his 2008 reelection bid. Judge Law was subsequently defeated in that November general election.

Kenneth Law Fined $4,100 for Campaign Violations

Penalty Follows Ethics Complaint Filed by Texans for Public Justice

Austin: Former Third Court of Appeals Chief Justice W. Kenneth Law agreed to pay a $4,100 penalty imposed by the Texas Ethics Commission to settle charges brought by Texans for Public Justice that he violated numerous campaign finance regulations during his 2008 reelection bid. Judge Law was subsequently defeated in that November general election.

In a sworn complaint to the Texas Ethics Commission on September 17, 2008, TPJ alleged that Judge Law violated at least six provisions of the campaign finance laws, including raising $66,850 before appointing a campaign treasurer as required by law and failing to disclose occupation and employer information for more than 50 of his contributors. At the time of the complaint, TPJ noted that the violations represented either incompetence or indifference to the campaign finance laws.

Earlier this month, the Texas Ethics Commission determined that there was credible evidence that Judge Law violated six sections of the Election Code and two sections of Ethics Commission Rules.

Law was first elected to the 3rd Court of Appeals in 2002. In August of 2008 he joined a controversial ruling in the criminal case against Tom DeLay’s Texans for a Republican Majority (TRMPAC). The ruling used technical distinctions between “funds” and “checks” to suggest that TRMPAC did not illegally launder corporate political funds. Litigation over the money laundering charges is ongoing.

Details and copies of TPJ’s original complaint against Judge Law can be found here. Read More

Amarillo Globe-News: Sterquell doled out nearly $370,000 to state officials

For a man who ran a nonprofit organization, Steve Sterquell proved generous to a handful of state officials. Campaign donation reports filed with the Texas Ethics Commission show that over the course of eight years Sterquell gave out nearly $370,000, nearly half going to former state comptroller and failed gubernatorial candidate Carole Keeton Strayhorn. Another large amount went to her successor, Susan Combs. Read the article at the Amarillo Globe-News

Sterquell doled out nearly $370,000 to state officials

By Enrique Rangel/ The Amarillo Globe-News
June 29, 2009

AUSTIN - For a man who ran a nonprofit organization, Steve Sterquell proved generous to a handful of state officials.

Campaign donation reports filed with the Texas Ethics Commission show that over the course of eight years Sterquell gave out nearly $370,000, nearly half going to former state comptroller and failed gubernatorial candidate Carole Keeton Strayhorn. Another large amount went to her successor, Susan Combs.

Others who received smaller amounts included state Rep. David Swinford, R-Dumas; state Sen. Kel Seliger, R-Amarillo; and Attorney General Greg Abbott. The campaigns of Gov. Rick Perry and Lt. Gov. David Dewhurst also received contributions. But aside from Swinford and Seliger, Sterquell didn't give money to any other West Texas lawmaker.

While the contributions to state officials reached into the hundreds of thousands, they pale in comparison to the millions given over the years by the likes of Houston home builder Bob Perry - no relation to the governor - and San Antonio entrepreneurs James Leininger and Charles Butt.

"We rank contributors every two years and in 2006, which was our last one, (Sterquell) was No. 65 in our ranking," said Andrew Wheat, research director at Texans for Public Justice, an Austin-based group that monitors campaign donations.

"Although he didn't give out millions and millions of dollars like Perry (or) Leininger ... the reason he came to our attention is because he led a nonprofit," Wheat said. "It's a mystery to us why he gave to those folks ... it looked like he didn't have to. It is the lobbyists or special interests who give so much money because they want something in return, but a nonprofit?"

Most who received contributions from Sterquell say they knew him as an acquaintance or hardly at all. One exception is Swinford, who received $44,750 over a five-year period, including three $10,000 checks. He said he knew Sterquell for about 15 years, and the donations were for annual pheasant-hunting trips the lawmaker organizes as political fundraisers at the end of each year.

Sterquell would bring upward of a dozen people to participate in the hunting trip, and he would pay for all of them, Swinford said. "Outside of that, he never contributed to my campaign," he said.

Swinford said he appreciates the work Sterquell did in building homes for low-income people in Amarillo and other Texas communities, which is why the day Swinford learned of Sterquell's April 1 death he filed a House resolution to adjourn the daily session in his memory.

Swinford said at the time he didn't know that Sterquell had committed suicide, nor of the bankruptcy proceedings that were to follow.

"After we learned more about his death two weeks later, we didn't do anything with the resolution," he said.

For his part, Abbott said he hardly knew Sterquell.

"Obviously, he contributed to my campaign, but we weren't friends or anything like that," said Abbott, who with more than $8.5 million in campaign donations, the largest amount of any official in Texas, has a long list of wealthy donors.

"So I don't know his personal situation," Abbott said.

Sterquell's Contributions

Amount: Recipient

• $171,282: Former State Comptroller Carole Keeton Strayhorn
• $78,321: Current State Comptroller Susan Combs
• $44,750: State Rep. David Swinford
• $26,553: Texas Attorney General Greg Abbott
• $14,124: Lt. Gov. David Dewhurst
• $13,500: State Sen. Kel Seliger
• $11,000: Texas Supreme Court Justice Don Willett
• $3,084.40: Failed House District 85 candidate Jim Landtroop
• $2,500: Gov. Rick Perry
• $2,500: Failed gubernatorial candidate Tony Sanchez
  
  Source: Texas Ethics Commission
  

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Wall Street Journal: Ruling on 'Probable Bias' Spotlights Political Reality

The U.S. Supreme Court's decision this week calling for judges to stay out of cases involving big political donors confronts the growing role of money in the U.S. judicial system. Read the article at the Wall Street Journal

Ruling on 'Probable Bias' Spotlights Political Reality

By NATHAN KOPPEL/ Wall Street Journal
June 10, 2009

The U.S. Supreme Court's decision this week calling for judges to stay out of cases involving big political donors confronts the growing role of money in the U.S. judicial system.

Political donations to judicial candidates at the highest state courts have soared in recent years, creating concerns that money is eroding public confidence in the system.

Critics say states should enact such reforms as requiring taxpayers to underwrite judicial races. Another possible reform is to scrap contested elections in favor of appointing judges to the bench, which is the practice of some states.

The Nevada legislature recently approved a 2010 ballot initiative that will ask voters to adopt an appointment system for judges. Legislation is pending in Wisconsin to allow as much as $1.2 million in public financing for state supreme court candidates.

Monday's high court ruling involved allegations by Hugh Caperton, a mining executive who claimed he was run out of business by Massey Energy Co. His case ended up before a supreme court judge in West Virginia who benefited from $3 million in campaign contributions from a Massey executive.

The Supreme Court held that judges should disqualify themselves when a party's campaign contributions are large enough to raise "the probability of actual bias." Monday's decision didn't specify a dollar amount for judges to consider.

"The massive amount of money flowing into judicial races certainly impacts the perception of whether courts can be fair," said Sue Bell Cobb, chief justice of the Alabama Supreme Court.

Judge Cobb was elected to her current post in a 2006 race in which she and her opponent raised more than $7.5 million -- one of the highest campaign totals in any state supreme court race, she said. Campaign contributions have not skewed results in Alabama, she said, but it has eroded trust in the court.

From 1999 to 2008, state supreme court candidates raised $200 million nationwide, more than double the amount they raised in the previous nine years, according to Justice at Stake, a Washington, D.C. organization that opposes campaign spending in judicial races. Much of that funding comes from constituencies with vested interests in cases before the courts, including business organizations and plaintiffs' lawyers. Last year in Ohio, where two supreme court seats were up for grabs, insurance companies and corporate-defense law firms were among the largest contributors to the victorious Republican candidates, while labor unions gave heavily to the Democratic candidates, according to a study by Ohio Citizen Action, a government watchdog group.

Recently, Ohio business groups have donated more than their pro-consumer counterparts, one reason the state's supreme court is all Republican, said Catherine Turcer, the director of Ohio Citizen's Money In Politics project.

"We don't have a problem of actual bias, but there is a problem of perceived bias," said Chris Davey, a spokesman for Ohio State Supreme Court Chief Justice Thomas Moyer. Mr. Moyer has long favored a system of appointing state supreme court judges and then later requiring them to stand for a retention election, Mr. Davey said.

The six major-party candidates for the Texas Supreme Court in elections last year received $2.3 million combined from lawyers and parties who had cases in the court from 2005 to 2008, according to a report by Texans for Public Justice, a nonprofit organization that tracks campaign contributions. The organization studied campaign contributions from January 2007 to June 2008.

Wallace Jefferson, chief justice of the all-Republican Texas Supreme Court, said, "Retention elections are far less costly than partisan elections and that would get judges out of th e business of soliciting huge amounts form lawyers and litigants."
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El Paso Times: Supreme Court limits cases for elected judges

Elected judges like those in Texas will likely come under greater scrutiny because of a Supreme Court ruling Monday involving a West Virginia case. The high court said elected judges must remove themselves from cases involving parties who gave them large campaign contributions to avoid bias or the appearance of it. Read the article at the El Paso Times

Supreme Court limits cases for elected judges

By Diana Washington Valdez / El Paso Times
06/08/2009

EL PASO -- Elected judges like those in Texas will likely come under greater scrutiny because of a Supreme Court ruling Monday involving a West Virginia case.

The high court said elected judges must remove themselves from cases involving parties who gave them large campaign contributions to avoid bias or the appearance of it.

The 5-4 decision came down Monday in the case of Don Blankenship, a coal company executive who spent $3 million to oust one West Virginia Supreme Court justice and elect his replacement, according to a McClatchy-Tribune news wire story.

At the time, Blankenship and his Massey Coal Co. were appealing a $50 million jury verdict for having driven a small competitor into bankruptcy. After the election, new Justice Brent Benjamin twice cast the deciding vote to throw out the verdict against Massey.

Although the West Virginia case put a spotlight on the impact of money in state high-court races, Texas experts said the ruling is not likely to have an immediate impact on court cases.

By ruling on campaign contributions of elected judges, the court indirectly raised the issue of how judges are selected.

"I've been a lawyer for almost 30 years, and I can say our judges are fair and even-handed," said Carlos Cardenas, the new president of the El Paso Bar Association. "I also don't see Texas, a pretty independent state, changing its system for selecting judges.

"The Legislature has tried to change it before, but the proposals never get anywhere.Personally, I prefer the election system we have right now."

Craig McDonald, a spokes man for Texans for Public Justice in Austin, a nonprofit organization that advocates for judicial integrity, said Monday's court decision set a precedent.

"(The) court invites greater scrutiny, and more federal challenges, to determine when the corrupting influence of judicial campaign money violates the U.S. Constitution. Texas judges should stop raising campaign money from lawyers and litigants with business before their courts," McDonald said in a statement.

The Supreme Court did not set a hard or clear rule for when a judge must step aside. The four dissenters called the ruling hazy. But speaking for the majority, Anthony Kennedy said the principle of fairness requires that a judge not decide cases for a favored benefactor.

Professor Anthony Champagne, who teaches at the University of Texas-Dallas, said the ruling "is very important because it is the first time the court has ever said judicial campaign contributions can involve violations of due process."

"However, we can't tell yet how many other cases the decision might affect, or what the court means by a large campaign contribution," Champagne said. "The justices said this was an exceptional case, and it was. It will take a while for it to work its way through the trial courts, and appeals courts and so on."

Champagne said he has studied the issue of judge selections for 25 years, and tentatively leans toward a merit system, in which the governor selects judges who are recommended, and who then run later in "retention" elections.

In Texas, practically all nonfederal judges are elected, mostly in partisan races. El Paso municipal judges are elected in nonpartisan races. Partisan races include justices of the peace, county court judges, district judges, appeals court judges and high appellate court justices.

Champagne said Texas and six other states select their judges through partisan elections.

A few other states, including Ohio and Michigan, conduct nonpartisan elections, "that actually are very partisan," he said.

In the late 1980s, the Texas Supreme Court was rocked by a scandal featured on CBS TV's "60 Minutes" investigative report. The "Justice for Sale" TV program highlighted conflicts of interest among the Texas justices.

John Hill, then chief justice of the Texas Supreme Court, resigned to lead the charge to end partisan elections in Texas.

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Houston Chronicle: High court ruling may stir debate in Texas

Judges should withdraw from cases involving major campaign contributors to avoid the appearance of bias, the U.S. Supreme Court ruled Monday in an opinion that focuses light on a persistent problem in Texas politics. Read the article at the Houston Chronicle

High court ruling may stir debate in Texas

State's one of seven with partisan elections for judges

By MARY FLOOD Copyright 2009 Houston Chronicle
June 9, 2009

Judges should withdraw from cases involving major campaign contributors to avoid the appearance of bias, the U.S. Supreme Court ruled Monday in an opinion that focuses light on a persistent problem in Texas politics.

Texas, sometimes a center of controversy over judicial campaign contributions, is one of only seven states that elect judges in partisan elections.

“The greater value of this case is to cause a national debate on choosing judges the same way we choose legislators,” said Tom Phillips, a former Harris County judge and chief justice of the Texas Supreme Court and a long-time advocate for merit selection of judges.

Phillips and others said Monday’s court decision in Caperton vs. A.T. Massey Coal is so narrowly drawn to cover an extreme case that it won’t in itself spark great change. But the many advocates for a change in the Texas judicial selection system, which come from both parties and both sides of civil disputes, say discussion of this case and future litigation to further define the boundaries may help the state move toward change. (Read the opinion here in a pdf file.)

By a 5-to-4 vote, the high court found that due process rights were violated when a West Virginia judge refused to take himself off a case involving a mining company whose executive had contributed $3 million to the judge’s campaign. The majority opinion by Justice Anthony Kennedy said this was an extreme case in which someone with a personal stake in an ongoing case had a significant disproportionate influence through contributions.

Ruling called a challenge

The dissent said the decision didn’t explain the line where a judge should be recused and opens the door to further allegations of judicial bias and an erosion in public confidence in judicial impartiality.

“The Caperton decision challenges us to do more to remove the perception that judicial campaign contributions influence decisions in Texas courts. Caperton identified a core problem that exists in Texas even with expenditure limits,” said Texas Supreme Court Chief Justice Wallace Jefferson in a news release referring to voluntary caps on spending that are generally followed by judicial candidates.

The voluntary rules limit statewide candidates to $5,000 from any lawyer or $30,000 from lawyers in any one law firm, but don’t govern special interest groups’ contributions and spending that favors judicial candidates.

Gerry Birnberg, chairman of the Harris County Democratic Party, said the court decision could cause people to give more money to parties and special interest groups.

“I think we can expect some litigation over contributions to specific judges too,” said Birnberg.

‘The can of worms’

Anthony Champagne, a University of Texas-Dallas professor who writes about Texas judicial campaigns, said he’s heard of requests for recusals for campaign contributions in Texas appellate courts, not in local trial courts.

He said a recusal request over contributions could hypothetically come up in a criminal court if a defense attorney made large contributions to the judge or in a family or juvenile court case.

“I can see this case as being the can of worms the dissenters are talking about,” Champagne said. He said he expects case after case to go to federal appellate courts.

Texans for Public Justice Director Craig McDonald said this case sets a precedent.

“Texas need not overhaul its troubled judicial-selection system immediately. Nonetheless, the court invites greater scrutiny — and more federal challenges — to determine when the corrupting influence of judicial campaign money violates the U.S. Constitution,” McDonald said.

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Dallas Morning News: Supreme Court backs judges' recusals in big donors' cases

The U.S. Supreme Court ruled Monday that judges must step aside in cases involving their large political contributors, prompting renewed calls for Texas to change a system in which judges raise money to run in partisan elections. Read the article at the Dallas Morning News

Supreme Court backs judges' recusals in big donors' cases

Tuesday, June 9, 2009
By CHRISTY HOPPE / The Dallas Morning News
choppe@dallasnews.com

AUSTIN – The U.S. Supreme Court ruled Monday that judges must step aside in cases involving their large political contributors, prompting renewed calls for Texas to change a system in which judges raise money to run in partisan elections.

Experts and lawmakers said the decision, which was narrowly drawn and did not set a standard for what is impermissible influence, might not force immediate change in Texas, where contributions to judges are limited. But advocates of reform, including Texas Supreme Court Justice Wallace Jefferson, said they hoped it would focus the debate on how to improve the system.

The 5-4 ruling in a West Virginia case "challenges us to do more to remove the perception that judicial campaign contributions influence decisions in Texas courts," said Jefferson, a Republican who won re-election in November after spending more than $842,000.

Months ago, speaking before the Legislature, he was blunt about the problem, saying: "This is an area where perception itself destroys public confidence."

Since 1995, Texas has had contribution limits in judicial races: Individual families can donate $5,000, and political action committees are limited to $300,000.

Most experts said that those limits could prevent a conflict as significant as the one in the West Virginia case, Caperton vs. Massey Coal Co., in which the chief justice of the West Virginia Supreme Court must now recuse himself from a $50 million suit because he accepted $3 million in campaign contributions from the top executive of the coal plant.

But criticism is not unprecedented. The question of influence over the Texas Supreme Court arose last year when the court overturned an $800,000 arbitration award to Bob and Jane Cull of Mansfield, who had sued Houston homebuilder Bob Perry, the largest GOP contributor in the state.

The Culls had lodged a 10-year fight over a house with cracked foundations and walls, but their court victories were set aside by the state's highest court, where all nine of the justices had received contributions from Perry totaling $260,000. The contributions were directly from him and through a political action committee.

Texans for Public Justice, which has fought to rid judicial campaigns of political money, said the U.S. Supreme Court ruling shows that Texas judges should stop raising money from those who have business before the court.

"The court invites greater scrutiny – and more federal challenges – to determine when the corrupting influence of judicial campaign money violates the U.S. Constitution," said the group's director, Craig McDonald.

Texas is one of four states where all general jurisdictional judges are selected in partisan elections, along with Louisiana, Alabama and West Virginia.

The system works just fine, said Kirsten Gray, a spokeswoman for the Texas Democratic Party. Both the Republican and Democratic parties have fought legislation that would change how the state elects its judges, saying Texans are fiercely protective of the opportunity to vote for judges.

Partisan labels are helpful for voters, and appointing judges doesn't remove the politics, Gray said.

"Whether chosen by voters or appointed by the governor, ideology will be taken into account, so it's better to have those people who live in that area chose their own judges," Gray said.

Sen. Robert Duncan, R-Lubbock, and former Chief Justice Tom Phillips have both worked for a system in which judges are appointed and then the voters decide whether to retain them in office.

"The most useful thing the opinion might do is give further background to the debate on how we select judges," Phillips said.

With partisan labels and money-raising pressures, "the whole system is bad," he said.

Duncan said he doubts the court decision will be much of an impetus to change Texas' ways because "there are just too many stakeholders who have an interest in keeping it the way we have it."

But it could cause more judges to be asked to step aside in cases where their campaign donors have an interest.

"In Texas, we need to take some time and scratch our heads and ask, 'Do we have sufficient safeguards to keep these situations from happening,' " Duncan said. "We've attempted to address some of those kinds of abuses, but if it is enough, I don't know."

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AT A GLANCE: JUDICIAL ELECTIONS

The case decided Monday has drawn a spotlight on the skyrocketing costs of judicial elections:

ELECTED HIGH COURTS: Supreme court justices are elected in 21 states, including Texas.

OTHER JUDICIAL VOTES: Eighteen other states hold elections for other judicial positions.

MONEY RAISED: A judicial reform group has found that state supreme court candidates raised almost $168 million from 2000 to 2007, nearly double the amount raised in the 1990s.

AT A GLANCE: THE RULING

The decision: The Supreme Court ruled 5-4 that elected judges must recuse themselves in "extreme" cases where huge campaign contributions create the perception that they will be biased in favor of their campaign benefactors.

Case reviewed: The court decided a West Virginia Supreme Court justice erred in participating in a case overturning a $50 million verdict against a company headed by a man who spent $3 million on the justice's election.

Swing vote: The decision reinforced the pivotal role of Justice Anthony Kennedy, who often is in position to decide controversial cases. He sided with Justices John Paul Stevens, David Souter, Ruth Bader Ginsburg and Stephen Breyer.

Dissenting judges: They predicted that the decision would generate groundless litigation and undermine confidence in the judiciary. "It is an old cliché," Chief Justice John Roberts wrote, "but sometimes the cure is worse than the disease." He was joined by Justices Antonin Scalia, Clarence Thomas and Samuel Alito.

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TPJ Statement On Caperton v. Massey

"Setting an important precedent, a majority of the U.S. Supreme Court ruled for the first time today that state judges can violate constitutional due-process guarantees by failing to recuse themselves from cases involving major campaign funders. Given the narrow wording of this 5-4 decision, and the extreme nature of West Virginia’s Caperton case, Texas need not overhaul its troubled judicial-selection system immediately. Nonetheless, the court invites greater scrutiny--and more federal challenges--to determine when the corrupting influence of judicial campaign money violates the U.S. constitution. Texas judges should stop raising campaign money from lawyers and litigants with business before their courts. We welcome greater federal oversight of this objectionable practice." --Texans for Public Justice Director Craig McDonald

Read the statement in PDF

Lobby Watch:Defendant Mozilo Built Second Home in Texas

Yesterday federal securities regulators filed civil charges against Angelo Mozilo, who headed California mortgage giant Countrywide Financial. In 2004 Texas' top leaders awarded $20 million in taxpayer funds to induce Countrywide to expand its Texas workforce. After the troubled company laid off one-fifth of its workforce, Governor Perry now refuses to release the compliance reports that Countrywide files to verify if it is has met the jobs requirements of its state grant. Read the Lobby Watch

Texas Observer: Reappraising the Governor: Rick Perry's private tax protest

Long before he got national attention for secessionist foreplay at Tax Day “tea parties,” Gov. Rick Perry quietly launched a personal tax revolt. In March 2001, Texas’ new governor bought an exclusive lot on Lake LBJ’s Horseshoe Bay. Horseshoe Bay Republican state Sen. Troy Fraser sold Perry the Hill Country tract six months after Fraser bought it, along with an adjacent one, in the ritzy Peninsula development. Read the article at the Texas Observer

Reappraising the Governor: Rick Perry's private tax protest.

By Andrew Wheat , Texas Observer Features
May 29, 2009

Long before he got national attention for secessionist foreplay at Tax Day “tea parties,” Gov. Rick Perry quietly launched a personal tax revolt. In March 2001, Texas’ new governor bought an exclusive lot on Lake LBJ’s Horseshoe Bay. Horseshoe Bay Republican state Sen. Troy Fraser sold Perry the Hill Country tract six months after Fraser bought it, along with an adjacent one, in the ritzy Peninsula development. Horseshoe Bay Resort’s Web site calls the Peninsula its “most prestigious address,” adding, “Only 10 legacy waterfront estates lie behind its magnificent gated entrance and the Italian fountains with their distinctive lion head statuary.”

When Perry received his first property-tax assessment for this “prestigious address,” the lion in the Governor’s Mansion shook his majestic mane and issued a roar of protest. The Burnet Central Appraisal District had pegged the lot’s value at $414,700 for tax purposes. After Perry protested, the district slashed its appraisal to $313,762, the price the governor said he paid to Fraser.

The district stuck to this appraisal for six years—during the now-notorious real estate bubble. The governor had coveted waterfront property. Connie Barrington, who has sold Horseshoe Bay real estate for 25 years, told the Observer, “We are running out of waterfront.”

According to Burnet appraisal district Chief Appraiser Stan Hemphill, attorney Colleen McHugh of the defense firm Bracewell & Patterson (now Bracewell & Giuliani) filed a protest on the governor’s behalf in November 2001. At the time, McHugh was Perry’s chair of the Texas Public Safety Commission. The protest argued that Perry’s lot was worth $100,000 less than the appraised value. In December 2001, days after Bracewell announced it had recruited Perry Chief of Staff Barry McBee as a lobbyist, the district agreed to ­reappraise Perry’s lakefront lot at the stated purchase price. That first year, the devaluation lowered Perry’s tax bill from $8,418 to $6,308. Over its six-year life, the lower appraisal kept more than $14,000 in the governor’s pocket that he otherwise would have payed as taxes to local ­government entities. (More than 60 percent of the district’s tax money goes to the Marble Falls Independent School District.)

Burnet District Appraiser Tammy Ribera says that a sales price is widely regarded as the best indicator of a property’s value—provided the sale is “arm’s-length.” The term usually means a deal made by two parties with no special ties with one another—financial, familial, political—and no incentive to stray from market value. The Texas Tax Code, the ­authoritative source on this issue, defines “market value” as the price a property would sell for if “both the seller and purchaser seek to maximize their gains and neither is in a position to take advantage of the exigencies of the other.”

The arm that separated Perry from Sen. Fraser was stubby at best. The two politicians have been friends since they were high-schoolers, when they met through Future Farmers of America. When Fraser made his successful first run for the state House in 1988, he did so at the prompting of then-Democratic Rep. Rick Perry. During the two years preceding their land deal, then-Lt. Gov. Perry tapped Fraser to chair a special Senate Subcommittee on Technology and Business Growth—increasing the political clout of Fraser, who now chairs the Senate Business and Commerce Committee.

A Burnet district appraiser says tax protesters typically don’t volunteer information indicating that a purchase may not have been arm’s length. Chief Appraiser Hemphill says he does not recall any arm’s-length concerns about Perry’s purchase. He says appraisers typically work with limited information. Briefed on the relationship of Perry and Fraser, Hemphill declines to discuss the specifics of the case. “If I knew a lot of information about something [like that], it could question whether that’s an arm’s-length sale. Was it or was it not? I don’t know,” he says.

Art Cory, who heads the Texas Comptroller’s Property Tax Division, says, “Most appraisers aren’t going to have this [kind of] information. There’s nothing there that would strongly indicate that it wasn’t an arm’s-length relationship,” Cory says. Typical flags, he says, are sales by parents to children, or sales by parent companies to subsidiaries.

From when he worked at the Travis Central Appraisal District, Cory recalls a politician—he declines to name the name—who filed a tax protest containing a questionable sales price. He says the district rejected the price because it was markedly lower than what comparable properties fetched. “If there’s some suspicion that a relationship caused the sale to be other than a market price,” Cory says, appraisers are supposed to ensure that the sales price aligns with prices of similar properties.

Asked how Perry’s price compares with sales prices of comparable properties, Hemphill says, “There’s not much like any of these [Peninsula] properties.” He says the Peninsula “is a unique area” with some of Burnet County’s most desirable waterfront property. While all the Peninsula lots are pricey, Hemphill says the governor’s lot isn’t one of the finest. (Of seven undeveloped tracts at the Peninsula, Perry’s was appraised at the second-lowest value.)

Defending the devaluation of Perry’s lot, Hemphill says, “That seemed like a high value for that time.” The appraiser adds that, “It’s hard to argue with a closing statement.”

Perry did not file a closing statement with in his protest. Hemphill says the district provided Perry’s entire protest file to the Observer in response to its Public Information Act request. The file included no closing statement.

Texas is one of few states that do not require sales-price disclosures. (Two bills to mandate disclosure died in House committees during this year’s Legislature.) As a result, Texas appraisal districts often ask property owners to disclose sales prices voluntarily. In July 2001, the governor responded to such a questionnaire from the Burnet appraisal district. Perry reported he bought the Horseshoe Bay lot four months earlier for “$300,000.” That is $13,762 less than the governor claimed the sales price was several months later, when he filed his tax protest. Asked about the discrepancy, appraiser Stan Hemphill says, “Sometimes people round numbers off.”

From 2001 to 2007, just three of the seven undeveloped Peninsula lots managed to avoid an appraisal increase—two belonged to Perry and Fraser. In 2007, when Perry sold his land, the district hiked appraisals of every undeveloped lot in the Peninsula. A district appraiser told the Observer that the increases reflected documented sales of surrounding waterfront lots for more than $1 million apiece. Perry’s 2007 increase almost doubled the appraised value of his land, to $600,000, a 93 percent increase the year he sold the lot. His taxes had gone from $7,543 in 2006 to $12,345 in 2007. Perry had other reasons to sell his Peninsula property. On the same day he sold his lot, he bought a house in College Station (see “Always an Aggie,” Observer, May 15).

The governor’s office did not respond to repeated requests for comment for this story.

When he sold the Peninsula property to Perry in 2001, Fraser kept his neighboring lot. Throughout this period, Fraser owned another Burnet County lot appraised at just $8,000. Fraser’s homestead, appraised at $1.9 million, lies on the Llano County side of Horseshoe Bay. Though these three properties carry collective appraisals of $3.3 million, Fraser has filed sworn personal financial statements with the Texas Ethics Commission in recent years claiming that he has had no real estate interests. The state ethics form asks legislators to “describe all beneficial interests in real property held or acquired by you, your spouse or a dependent child during the calendar year.” Fraser checked “not applicable.”

In this year’s Legislature, Fraser has championed transparency as an antidote to self-dealing at the troubled Pedernales Electric Cooperative. (Fraser, like Perry, did not respond to repeated requests for an interview.) The Ethics Commission can fine officials who file incomplete financial disclosures up to $10,000. Noncompliance also is a criminal misdemeanor for which prosecutors can seek a maximum penalty of $2,000 and six months’ imprisonment.

The empty lot on Horseshoe Bay previously owned by the governor is for sale. Wallace Holdings LLC, which bought the land from Perry, is advertising it with an asking price of $2.85 million—nine times what Perry paid Fraser for it eight years ago.


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Austin American-Statesman: More of American Housing Foundation’s public money

This weekend I wrote about the suicide of Amarillo’s Steve Sterquell and how his now-troubled non-profit company, American Housing Foundation, built an affordable housing empire using public subsidies such as tax-exempt bonds and property tax exemptions. But I didn’t mention a third taxpayer-supported program that Sterquell has been able to use to leverage his projects. Read the article at the Austin American-Statesman

More of American Housing Foundation’s public money

By Eric Dexheimer Thursday, May 28, 2009
Austin American-Statesman

This weekend I wrote about the suicide of Amarillo’s Steve Sterquell and how his now-troubled non-profit company, American Housing Foundation, built an affordable housing empire using public subsidies such as tax-exempt bonds and property tax exemptions. But I didn’t mention a third taxpayer-supported program that Sterquell has been able to use to leverage his projects.

About one-sixth of the foundation’s 14,000 units across the country were built or renovated using money from the federal Low-Income Housing Tax Credit Program. Taken together, over the years that public subsidy has come to just under $53 million.

The 23-year-old program was designed as a way to convince private companies to invest in affordable housing. Every year the federal government gives state housing agencies tax credits to promote affordable housing. The amount of the credits is based on the state’s population. To those who have them, the credits offer a dollar for dollar reduction of their tax bill: A person who owes $1,000 in income tax and possesses $1,000 in tax credits has a net bill of $0.

In Texas, the Texas Department of Housing and Community Affairs divvies up the tax credits based (in theory) on the merits of competing projects — the type of affordable housing offered, location, cost and so on. (For a brief history of how other factors may have influenced the allocation of the credits in the past, check out this fine 2007 report from Texans for Public Justice.) Each award generally is good for 10 years of credits.

Once the affordable housing developer receives tax credits through TDHCA, it sells them on the open market, usually to large corporations seeking to defray their tax bills. The first company that purchased American Housing’s tax credits was Chevron, the giant oil company. (It has continued to partner with the Amarillo developer on several projects.) The developer then uses the proceeds from that sale to pay for housing construction or rehabilitation. By law, it is also allowed to take 15 percent off the top for “developer’s fees.”

How much money the developers raise depends on what the corporations will pay for the credits. Generally, the better the economy and the more profitable corporations are, the more they are willing to pay for credits to offset their large income tax bills. In times of plenty, affordable housing developers have been able to sell a dollar’s-worth of credits for upwards of 95 cents. Conversely, a lousy economy — such as today’s — means less profit, with tax credits fetching closer to 70 cents on the dollar.

According to figures put together for me by TDHCA, American Housing received publicly subsidized tax-credit financing on 16 different projects in seven Texas cities between 1996 and 2006. Amarillo, it’s home base, had the most, with eight separate affordable housing developments containing a combined apartment 980 units.

The total value of the tax credits for the Amarillo-based developments was $2.84 million. But remember: each award is good for 10 years. So the total value of tax credits for the Amarillo projects is really $28.4 million.

Austin has two of American Housing Foundation’s tax-credit financed affordable housing projects — Fairway Village, near Montopolis Drive, and Santa Maria Village, off North Lamar Boulevard — paying a total of $3.8 million over the 10-year life of the credits.

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